Posts from January 2011

Friday, January 28, 2011

Californians who buy products with allegedly false labels, like "Made in U.S.A.," can sue the manufacturer without having to prove that the product was overpriced or didn't work, the state Supreme Court ruled Thursday.

As we recently have noted, however, the standards for establishing standing under section 17204 and eligibility for restitution under section 17203 are wholly distinct. (See Clayworth v. Pfizer, Inc., supra, 49 Cal.4th at p. 789.) For the drafters of Proposition 64, which amended both sections 17203 and 17204, to make standing under section 17204 expressly dependent on eligibility for restitution under section 17203 would have been easy enough, but nothing in the text or history of Proposition 64 suggests this was intended. (Clayworth, at pp. 788-789.) We thus rejected in Clayworth the argument that if the plaintiffs could demonstrate no compensable losses or entitlement to restitution under section 17203, they would lack standing under section 17204. ....

Slip op. at 29-32 (footnote omitted; emphasis added). Even the dissent acknowledges that a competitor who suffered "lost sales and profits due to Kwikset's misrepresentations" (which would not normally be recoverable as restitution) would have standing under Prop. 64. Dissent, Slip op. at 11.

The Kwiksetopinion is up. It is a 5-2 decision with Justices Chin and Corrigan dissenting. It appears that the plaintiffs have won the case, as summarized in the introductory paragraphs quoted below. More later.

This case arises from Kwikset Corporation’s (Kwikset) manufacturing of locksets it labeled as “Made in U.S.A.” James Benson brought suit under the unfair competition and false advertising laws to challenge the labels’ veracity. After a bench trial, the trial court entered judgment for Benson.

While the case was pending on appeal, the electorate enacted Proposition 64 (Gen. Elec. (Nov. 2, 2004)), which called into question Benson’s standing to challenge Kwikset’s country of origin representations. Benson then filed an amended complaint in which he alleged he purchased Kwikset’s locksets and would not have done so but for the “Made in U.S.A.” labeling. The Court of Appeal concluded this allegation was insufficient to establish standing because it did not satisfy Proposition 64’s requirement that a plaintiff have “lost money or property.” (See Prop. 64, §§ 3, 5.)

We granted review to address the standing requirements of the unfair competition and false advertising laws in the wake of Proposition 64. We conclude Proposition 64 should be read in light of its apparent purposes, i.e., to eliminate standing for those who have not engaged in any business dealings with would-be defendants and thereby strip such unaffected parties of the ability to file “shakedown lawsuits,” while preserving for actual victims of deception and other acts of unfair competition the ability to sue and enjoin such practices. (Voter Information Guide, Gen. Elec. (Nov. 2, 2004) argument in favor of Prop. 64, p. 40; see also Prop. 64, § 1.) Accordingly, plaintiffs who can truthfully allege they were deceived by a product’s label into spending money to purchase the product, and would not have purchased it otherwise, have “lost money or property” within the meaning of Proposition 64 and have standing to sue. Because plaintiffs here have so alleged, we reverse.

Friday, January 21, 2011

Today is the last day to pre-register and get the reduced rate for CAOC's Fifth Annual Class Action Seminar, which will take place next Wednesday, January 26 from noon to 6:00 p.m. at the Sir Francis Drake Hotel in San Francisco.

I would encourage all plaintiff-side attorneys to register today if you have not already done so. I have been asked to assist in moderating the event, so I'll look forward to seeing you all there next week.

Wednesday, January 19, 2011

I have not previously reported on Shroyer v. New Cingular Wireless Services, 606 F.3d 658 (9th Cir. 2010), issued in May and amended in September, in which the Ninth Circuit addressed the UCL's "unlawful" prong:

In his complaint, Shroyer alleged that New Cingular violated the common law of unfair competition and breached his contract. These practices alone do not amount to a violation of the “unlawful” prong of § 17200; Shroyer must also allege that New Cingular engaged in a business practice “forbidden by law, be it civil or criminal, federal, state, or municipal, statutory, regulatory, or court-made.” Saunders v. Superior Court, 27 Cal. App. 4th 832, 838-39 (Cal. Ct. App. 1994). In other words, a common law violation such as breach of contract is insufficient. See Allied Grape Growers v. Bronco Wine Co., 203 Cal. App. 3d 432, 450-54 (Cal. Ct. App. 1988) (finding a § 17200 violation only after finding three violations of the California Food and Agriculture Code); see also Nat’l Rural Telecomms. Coop. v. DIRECTV, Inc., 319 F. Supp. 2d 1059, 1074-75 (C.D. Cal. 2003) (holding that a violation of common law can support a § 17200 claim, provided that the conduct is also unlawful, unfair, or fraudulent). Because Shroyer does not go beyond alleging a violation of common law, he fails to state a claim under the unlawful prong of § 17200.

Slip op. at 14421 (emphasis added). Given the emphasized language that the panel quoted from the Saunders decision (which finds support in many other California appellate decisions), I'm not sure how the panel could then conclude that a common-law violation cannot support a UCL "unlawful" prong claim. The other cases the panel cites provide scant support, and the case law in California is generally to the contrary.

Last week I mentioned Dukes and Concepcion, now pending before the U.S. Supreme Court, as class action cases to watch in 2011. Here are three more U.S. Supreme Court cases involving class certification issues to be aware of:

Smith v. Bayer Corp., no. 09-1205 (U.S.). The Supreme Court granted cert. in this case on September 28, 2010 and it will be argued today (January 18, 2011). The case addresses the extent to which a federal court, applying the Anti-Injunction Act (28 U.S.C. § 2283), may prohibit a class action case from proceeding in state court if class certification has already been denied in federal court. The Eighth Circuit affirmed such an injunction in In re: Baycol Products Litigation, 593 F.3d 716 (8th Cir. 2010). (The Seventh Circuit recently addressed a similar issue under the All Writs Act (28 U.S.C. § 1651(a)) in Thorogood v. Sears, Roebuck and Co., 624 F.3d 842, rehearing denied, 627 F.3d 289 (7th Cir. 2010).) Briefs may be found at the SCOTUSblogpage for the case.

(1) Whether the Fifth Circuit correctly held, in direct conflict with the Second Circuit and district courts in seven other circuits and in conflict with the principles of Basic v. Levinson, 485 U.S. 224 (1988), that plaintiffs in securities fraud actions must not only satisfy the requirements to trigger a rebuttable presumption of fraud on the market, but must also establish loss causation at class certification by a preponderance of admissible evidence without merits discovery; (2) whether the Fifth Circuit improperly considered the merits of the underlying litigation, in violation of both Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974), and Federal Rule of Civil Procedure 23, when it held that a plaintiff must establish loss causation to invoke the fraud-on-the-market presumption.

Philip Morris USA, Inc. v. Jackson, no. 10-735 (U.S.). I previously reported that in September, Justice Scalia issued an order in this case staying enforcement of a $240 million judgment entered in Louisiana state court in a class action against the tobacco industry. In the order, Justice Scalia suggests that the full court is likely to take up the case. The cert. petition states the question presented as follows:

Whether the Due Process Clause prevents state courts from employing the class-action device to eliminate fundamental substantive and procedural protections that would otherwise apply to adjudications of class members’ individual claims.

A number of conservative organizations have already filed amicus curiae briefs. The response to the cert. petition is due on February 2, 2011. If the Supreme Court takes up this case, five new opinions involving major class action issues will soon be handed down.

“Pick something you are personally really interested in; then it won’t seem like work,” Shook Hardy Bacon’s Kevin Underhill suggests. “Blogging is a big time commitment. If you don’t enjoy it, you just won’t do it.” He recommends posting “at least daily if you want a lot of traffic.”

Monday, January 10, 2011

Here are six important cases to follow in the coming months (listed in no particular order):

Kwikset Corp. v. Superior Court (Benson), no. S171845 (Cal.). This UCL case was argued in the California Supreme Court on November 3, 2010, which means that the opinion is due by Tuesday, February 1, 2010. Because the Court hands down opinions on Mondays and Thursdays, we can expect the opinion no later than Monday, January 31, 2011 -- assuming former Chief Justice George sends his vote in from Antarctica! In this case, the Supreme Court will be interpreting Prop. 64's "lost money or property" language.

AT&T Mobility LLC v. Concepcion, no. 09-893 (U.S.). This case was argued in the U.S. Supreme Court on November 9, 2010. The issue is whether the FAA preempts state-law unconscionability principles as applied to no-class-action arbitration clauses in consumer contracts of adhesion, and the continuing vitality of our own Supreme Court's Discover Bank decision could be at stake. The opinion will be filed by the end of the current Term, which means no later than June 27, 2011.

Brinker Restaurant Corp. v. Superior Court (Hohnbaum), no. S166350 (Cal.). This wage and hour case raises substantive questions relating to California's meal period and rest break laws, but could also be a significant class certification case. The Supreme Court has not directly addressed core class certification issues since Sav-on in 2004. The case is fully briefed, but has not yet been scheduled for oral argument. It may or may not be set this year. [Disclosure: My firm is co-counsel for the workers in Brinker.]

Wal-Mart Stores, Inc. v. Dukes, no. 10-277 (U.S.). The U.S. Supreme Court granted cert. in this case on December 6, 2010, and has scheduled oral argument for March 29, 2010. The opinion will be filed by the end of June 2011, when the current Term ends. The district court granted class certification of certain employment discrimination claims under Rule 23(b)(2), and the Ninth Circuit, sitting en banc, affirmed in part.

Mazza v. American Honda Motor Co., no. 09-55376 (9th Cir.). In this auto defect case, the district court granted nationwide class certification of UCL and CLRA claims for recovery of economic losses. Mazza v. American Honda Motor Co., 254 F.R.D. 610 (C.D. Cal. 2008). The Ninth Circuit granted a Rule 23(f) petition for permission to appeal, and the case was argued on June 11, 2010. One day after the Supreme Court granted cert. in Dukes, however, the Ninth Circuit issued a sua sponteorder deferring submission of the action pending resolution of that case.

Sullivan v. DB Investments, Inc., no. 08-2784 (3d Cir.). In this antitrust case for price-fixing in the diamond industry, the Third Circuit reversed the district court's order granting final approval of a nationwide class action settlement. Sullivan v. DB Investments, Inc., 613 F.3d 134 (3d Cir. 2010). On August 27, 2010, en banc rehearing was granted, and the case has been scheduled for argument on February 23, 2011. On November 10, 2010, the Court ordered supplemental briefing on some broad class-certification-related questions.

In Mahmud, the Court of Appeal (Second Appellate District, Division Four) refused to enforce an arbitration clause with a class action waiver. In so holding, the Court adopted the reasoning of the Second Circuit in Fensterstock v. Education Finance Partners, 611 F.3d 124 (2d Cir. 2010) (discussed in this blog post):

The issue addressed in Stolt-Nielsen -- whether parties to an arbitration agreement may be compelled to arbitrate a dispute on a classwide basis when the agreement is silent -- is not at issue here. The trial court did not order the parties to arbitrate on a classwide basis. Instead, the court found the arbitration agreement’s class action waiver unenforceable, denied Ralphs’ petition to compel without prejudice, and permitted the action to proceed [in court], at least until the class issue is resolved. The trial court’s actions were appropriate under Gentry, and were not inconsistent with Stolt-Nielsen.

Our conclusion is supported by the Second Circuit’s recent decision in Fensterstock v. Education Finance Partners (2d Cir. 2010) 611 F.3d 124. There, a borrower claimed that the lender had misapplied some of the borrower’s monthly payments, resulting in an overcharge for interest. Applying California law, the district court found that a promissory note provision providing for arbitration of disputes over the loan on an individual basis only was unconscionable under Discover Bank, supra, 36 Cal.4th 148. The circuit court affirmed the unconscionability finding, specifically stating that California law as construed by the Supreme Court in Discover Bank was not preempted because it “‘place[s] arbitration agreements with class action waivers on the exact same footing as contracts that bar class action litigation outside the context of arbitration.’” (Fensterstock v. Education Finance Partners, supra, 611 F.3d at p. 134.) Accordingly, the circuit court upheld the district court order declining to stay the action and compel arbitration.

UPDATE: This article from the Recorder has a bit more detail. It says that Justice Moreno is considering joining a private law firm or ADR firm following his resignation from the Court, which will be effective February 28, 2011. This means the last group of cases Justice Moreno will hear are those scheduled for argument during the week of February 7. The February calendar has not yet been anounced.

UPDATE #2: The February calendar was just posted. Arguments will be held on a single date, Tuesday, February 8. Three non-criminal cases have been set, including one of particular interest:

Issue: Did the "death knell doctrine" require plaintiff to immediately appeal the sustaining of a demurer as to class claims when the ruling resolved both individual and class claims, or did the one final judgment rule apply and require a single appeal from the subsequent entry of final judgment on all claims?

I attended yesterday morning's arguments, which were the first over which new Chief Justice Tani Cantil-Sakauye presided. Associate Justice Kennard, the most senior of the associate justices, delivered a very nice welcoming address, which she said will be reported in the official reports. She talked about the history of discrimination experienced in this country by immigrants of Filipino and other Asian descent, and said that Chief Justice Cantil-Sakauye represents the embodiment of the American dream.

The Clerk, Mr. Ohlrich, told us before the justices took the bench that they had received an email Tuesday from former Chief Justice Ronald George, who is currently vacationing in the antarctic, heading soon to Chile. (Will this impact the timing of the eagerly-anticipated opinion in the Kwikset case, or the other cases in which Chief Justice George heard arguments last year? I don't know. If anyone deserves a vacation, he does!)

My purpose in attending the arguments today was not to provide the kinds of reports that I normally do. But I will briefly share some of my thoughts on the first two cases on the calendar.

Does a retailer violate the Song-Beverly Credit Card Act of 1971 (Civ. Code, § 1747 et seq.), which prohibits retailers from recording a customer’s “personal identification information” when the customer uses a credit card in a transaction, by recording a customer’s zip code for the purpose of later using it and the customer’s name to obtain the customer’s address through a reverse search database?

The trial court and the Court of Appeal both answered "no." In the Supreme Court, the questioning largely focused on whether part of a person's address (namely, the zip code) was "personal identification information," which "means information concerning the cardholder, other than information set forth on the credit card, and including, but not limited to, the cardholder's address and telephone number." Civ. Code § 1747.08(b) (emphasis added).

Based on the questions, I think most of the justices are leaning in favor of the plaintiff on this issue. These days, a person's name plus their zip code is enough information to find out their address, which is precisely what the Legislature meant to prevent retailers from obtaining from credit card customers. The justices' questions revealed keen interest not only in the plain text but also the legislative history. Justices Kennard and Werdegar both quoted from legislative history reports during the argument.

The only defense point that seemed to make any headway was offered by counsel for the Gap, participating as amicus curiae. She explained that the Gap collects zip codes from customers but does not use them to obtain addresses. Instead, the Gap uses them for market analysis and making decisions such as where to open new stores. She said that in the twenty years since the statute was enacted, no enforcement actions were ever brought on the theory that collecting zip codes was unlawful, and no judicial decision had ever so held. She argued it would be unfair (perhaps rising to the level of a due process violation) to impose civil penalties on retailers under such circumstances.

(This reminded me of the Supreme Court's decision some years ago in Kearney v. Salomon Smith Barney, Inc. , 39 Cal.4th 95 (2006). There, the Court held that California law prohibited recording telephone calls without both parties' consent (and that California law trumped Georgia law, which permitted recording with just one party's consent). The Court further held, however, that this ruling would apply only to future conduct.)

That argument was well presented and the justices were definitely listening to it. On balance, however, I think the questioning suggests that the plaintiff has a very good chance of prevailing in this case.

Does a stay of discovery constitute a stay of the action within the meaning of Code of Civil Procedure section 583.340, subdivision (c), such that the period during which discovery was stayed should be excluded in determining the time within which the action had to be brought to trial?

I did not focus on this case when the Court of Appeal decided it in March 2009, but it could be highly relevant in class action litigation. The action itself was a putative class action, one of several coordinated actions pending in Los Angeles County Superior Court. The Court of Appeal opinion details a series of stays, some of discovery, some of law and motion, some of all proceedings, beginning almost immediately after the case was filed. Bruns v. E-Commerce Exchange, Inc., 72 Cal.App.4th 488 (2009).

Discovery stays are not unusual in complex litigation, so the Supreme Court's decision could impact how the five-year rule is calculated in many class action cases. Based on the questioning (which was somewhat quieter than in Pineda), I think many of the justices were open to the argument that periods during which a case is partially stayed, and discovery cannot be conducted, should not be counted as part of the five years.

Wednesday, January 05, 2011

We have been having a slow period for new UCL- and class-action-related cases. So here's an older case on which I hadn't previously reported.

In Levine v. Blue Shield of California, 189 Cal.App.4th 1117 (Nov. 5, 2010), the Court of Appeal (Fourth Appellate District, Division One) stated without analysis that a UCL "fraudulent" prong claim predicated on an omission (as opposed to an affirmative misrepresentation) does not lie absent a duty to disclose. Id. at 1136 (citing Buller v. Sutter Health, 160 Cal.App.4th 981, 986 (2008)). (Here's my post from 2008 on the Buller decision, in which I explained that the idea that an omissions claim must involve a duty to disclose is a recent development and not quite so well settled as some assume.)

The court also applied the post-Cel-Tech formulation of "unfair," without mentioning the three-way split in authority that continues to persist on this issue. Id. at 1137 (citing Durell v. Sharp Healthcare, 183 Cal.App.4th 1350, 1366 (2010). (See this post for more on the split.)

Tuesday, January 04, 2011

Wednesday, January 26, 2011: CAOC College of Trial Arts, SFTLA, and the Bar Association of San Francisco are jointly sponsoring their 5th Annual Class Action Seminar on Wednesday, January 26, 2011 from noon to 6:00 p.m. at the Sir Francis Drake Hotel in San Francisco. This program is always excellent.

Friday, January 28, 2011: The Antitrust & Business Regluation Section of the Bar Association of San Francisco will present "Antitrust Class Actions after Sullivan v. DB Investments?" on Friday, January 28, 2011 at 12:00-1:30 at the BASF Conference Center, 301 Battery Street, 3rd Floor, San Francisco. Sullivan is the settlement approval case currently scheduled for en banc rehearing on February 23, 2010. According to the flyer, this program will also address In re Hydrogen Peroxide and Dukes v. Walmart Stores. Sounds interesting.

Monday, January 03, 2011

The U.S. Supreme Court wastes no time. Seventeen days after taking up the case, the Court scheduled oral argument in Wal-Mart Stores, Inc. v. Dukes, no. 10-277. The argument is set for Tuesday, March 29, 2010 at 10:00 a.m. No merits briefs have been filed yet.